Accounts receivable

Effective credit management involves establishing credit standards for extending credit to customers, determining the companys terms of credit, and setting up procedures for invoicing and collecting past-due accounts.

The following statement refers to a credit management policy. Select the best term to complete the sentence.

How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the companys (a. Collection Policy OR b. terms of credit OR C. Credit standard) .

Consider the case of Osato Chemicals Inc.:

Osato Chemicals Inc. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Osato Chemicals Inc. sells to its customers on credit terms of 1/10, net 30.

If a customer bought $150,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Osato Chemicals Inc. get from the customer? (Note: Round your answer to the nearest whole dollar.)

a. $123,750

b. $120,000

c. $148,500

d. $131,250

If the customer paid off the account after 15 days, Osato Chemicals Inc. would receive ? . (Note: Round your answer to the nearest whole dollar.)

a. $123,750

b. $150,000

c. $120,000

d. $131,250

Approximately 35% of Osato Chemicals Inc.s customers take advantage of the discount and pay on the 10th day. The remaining 65% take an average of 35 days to pay off their accounts. What is Osato Chemicals Inc.s days sales outstanding (DSO), or the average collection period? (Note: Do not round intermediate calculations. Round your answer to one decimal place.)

a. 30.2 days

b. 26.3 days

c. 22.4 days

d. 28.9 days